Higher Long-term Interest Rates And The Cost Of Student Loans

9th January 2024

Higher interest rates increase the expected government cost of financing the student loan system in England by more than £10 billion per year.

In recent years, the government's borrowing costs have always been lower than the interest rates it expected to charge on student loans. This has now changed. Yields on gilts have risen substantially over the past two years and are now higher than expected RPI inflation, which determines the interest rate on new student loans. As a result, as well as making a loss on the loans that are not repaid, the government can now also expect to make a loss on loans that are fully repaid.

The government can now expect a large total net loss of more than £7 billion per year on new student loans, when it could expect a total net gain of more than £3 billion if government borrowing costs were what they were two years ago.

This extra cost due to higher borrowing costs is not reflected in the government's measures of the cost of student loans. This means that the loss of more than £10 billion per year is not being captured in official figures.

Read the full report HERE